Saturday, September 22, 2012

The weak kneed Government
has suddenly started enforcing some harsh decisions ! – P Chidambaram seeks to
justify everything and calls all oppositions betrayers.. If Petrol Companies have been running huge
losses and if Govt had been heavily subsidizing Petrol, diesel and LPG- the primary Q is why
have these Corporations been spending extravagantly, paying bonuses, making
huge advertisements and more. If it is
simply retailing, i.e., buying barrels in International market and selling them
in retail, does it need any brain or industry at all – simple, the buying cost
+ expenses + administrative costs + % of profit = selling price. Why should Oil Companies be part of
Navrathnas, hailed about their performance and be run by Govt. Is it that somebody else is eating the larger
share of the cake – why would IOC / BP / HPC – all require marketing, why do
they incur costs on this count and where is the need for Agencies in running
the petrol bunks, some so glitzy – should not the Govt. directly sell petrol,
diesel and LPG ?

Reeling from the Coalgate
fire, the UPA government bit the bullet on a politically sensitive issue by
hiking the price of diesel by Rs five and putting a cap of six subsidised LPG
cylinders per family per year- and they call this a move to minimise the losses
suffered by the government-owned public sector oil companies and make the
country’s financial balance sheet look better.

Diesel Price at Chennai

Petrol price at Chennai

date

rate

date

rate

14/09/2012

49.98

1/8/2012

72.19

1/8/2012

44.76

24/07/2012

73.16

25/07/2012

43.83

29/06/2012

72.27

1/7/2011

43.95

3/6/2012

75.40

25/06/2011

43.80

24/05/2012

77.53

2/11/2010

40.16

1/12/2011

69.55

Diesel prices have gone up –
petrol has been steadily increasing ; there was a time when the price rise
would come along only with budget, but in the recent years, every alternate
month, you have a hike in petrol – why is this diesel hike, become such
political drama………………… for this sure would
affect aamadmi ‘the common man’. With
diesel being the sole fuel used for transportation of commodities as well as
passengers, consumers are bound to feel the pinch. Soon you will have the price of brinjals in
local market selling high, auto rickshaw fleecing you more and the cost of transportation
going up. TMC has walked out – some other
partners have other personal compulsions, in trying to be soft with any
hike.

What is more, the Govt. is
spending heavily in the form of advertisements seeking to justify the price
hike. The Ad campaign
tries to list out the reasons that
compelled the government to take these unpopular measures. It talks of the increasing crude oil price and international product price and the sharp
rupee depreciation against the US dollar as also the poor financial health of
oil marketing companies (OMCs)— IndianOil, Bharat Petroleum and Hindustan
Petroleum— will also be highlighted.

Read this article in First
Post, which is worth reading and circulating.
[R. Jagannathan -
http://www.firstpost.com/business/the-rs-16653-cr-lie-at-the-heart-of-govts-diesel-price-justification-457921.html]

A small lie is at
the heart of the government’s public justification for the recent hike in the
prices of diesel and the decision to restrict subsidised cooking gas (LPG)
supplies to six per family per year. In
advertisements released to the print media today, the ministry of petroleum and
natural gas says the government collected Rs 83,700 crore in taxes on petroleum
products and paid out Rs 1,38,500 crore as subsidy compensation to oil
marketing companies (OMCs) such as Indian Oil, Hindustan Petroleum, and Bharat
Petroleum.

Since the burden
of the opposition criticism is that taxes could have been lowered to reduce the
impact of the price hikes, the ad has this tearful reality to present: “The
government of India was, therefore, a net loser by Rs 54,800 crore.” This
figure is arrived by subtracting the duties collected from the subsidies paid
(Rs 1,38,500 crore – Rs 83,700 crore = Rs 54,800 crore).

The lie at the
heart of this statement is this: the government did not actually send any
cheque for Rs 1,38,500 crore to the OMCs to compensate them for their
“under-recoveries”. What actually
happened was that it paid Rs 83,500 crore and asked the upstream oil and gas
producers – Oil and Natural Gas Corporation, Oil India Ltd and gas marketing
company GAIL – to pick up the balance losses of around Rs 55,000 crore.

The government robbed Peter to pay Paul. The break-up of subsidy payments
went something like this: ONGC paid the OMCs around Rs 44,500 crore, GAIL Rs
3,200 crore and Oil India around Rs 7,400 crore approximately. If you are a
purist, you might argue that since ONGC, GAIL and Oil India are government
companies, there is nothing wrong in including their share of the subsidy
burden in the government’s total. But if you are really a stickler for
accuracy, let’s be clear: all three are listed companies and not owned fully by
the government of India.

ONGC has private
(i.e. non-government) shareholdings of 30.77 percent, GAIL has 42.66 percent
and Oil India, now due for further disinvestment, of 21.57 percent. If we were to
apportion the subsidies paid in proportion to their private shareholdings, you
will find that non-government private institutions and retail investors bailed
out the government to the tune of Rs 16,653 crore.

The small lie is
thus a big lie – of the amount it said it paid as subsidies (Rs 1,38,500 crore)
, Rs 16,653 crore is a false claim, even assuming you grant government the
right to rob the ONGCs of the world. It is also worth pointing out another
number: the duties collected are almost equal to the subsidies directly paid by
the government (Rs 83,700 crore versus Rs 83,500 crore). In short, in 2011-12,
the government did not pay one paisa in net subsidies out of its own pocket to
the OMCs.

Instead, it
arm-twisted the upstream oil companies to pay its bills and thus ruined their
profitability – including minority shareholders – in what can only be called an
appalling breach of corporate governance standards. This does not mean the oil
price hike was not justified. At Firstpost, we have always argued that oil
subsidies are simply unaffordable, and there is anyway no case for endlessly
underpricing fossil fuels and encouraging their misuse (purchase of diesel
cars, use of fuel-inefficient trucks and buses) to add to global warming.

Pricing fossil fuels on the basis of true costs, levying a carbon tax on
them, and encouraging renewable sources of energy are the way to go. Thus,
while the government is justified in raising fuel prices, it has damaged its
own credibility with citizens by starting the process with a little lie that
has turned out to be not so little: Rs 16,653 crore lie.

On a
different plane, though the Bharatiya Janata Party (BJP) at the national level
participated in the Bharat bandh on Thursday in protest against the Union
government for increasing diesel prices, the BJP government in the State is
poised to silently enjoy a windfall from this hike, about Rs. 250 crore this
fiscal. This additional and unexpected
revenue is through State’s sales tax, surcharge and entry tax components, which
come to about Rs. 1.13 on Rs. 5 increase in the base price of diesel, according
to sources in the public sector oil marketing companies.

With about 1.36 crore
litres of diesel being sold every day in Karnataka, additional Rs. 1.13 per
litre is expected to bring about Rs. 1.5 crore more revenue to the government
every day. About 480 crore litres of diesel was sold during 2011-12 in the
State and the sales are likely to touch 500 crore litres this fiscal. The
Karnataka government levies 16.75 per cent sales tax, 5 per cent surcharge and
5 per cent entry tax on diesel price.